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IRS Announces New Per Diem Rates For Taxpayers Who Travel For Business

Are you wondering about those updated per diem rates? The new per-diem numbers are now out, effective October 1, 2019. These numbers are to be used for per-diem allowances paid to any employee on or after October 1, 2019, for travel away from home. The new rates include those for the transportation industry; the rate for the incidental expenses; and the rates and list of high-cost localities for purposes of the high-low substantiation method.

I know, that sounds complicated. But it’s intended to keep things simple. The Internal Revenue Service (IRS) allows the use of per diem (that’s Latin meaning “for each day” – remember, lawyers love Latin) rates to make reimbursements easier for employers and employees. Per diem rates are a fixed amount paid to employees to compensate for lodging, meals, and incidental expenses incurred when traveling on business rather than using actual expenses.

Here’s how it typically works: A per diem rate can be used by an employer to reimburse employees for combined lodging and meal costs, or meal costs alone. Per diem payments are not considered part of the employee’s wages for tax purposes so long as the payments are equal to, or less than the federal per diem rate, and the employee provides an expense report. If the employee doesn’t provide a complete expense report, the payments will be taxable to the employee. Similarly, any payments which are more than the per diem rate will also be taxable.

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The reimbursement piece is essential. Remember that for the 2019 tax year, unreimbursed job expenses are not deductible. The Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed job expenses and miscellaneous itemized deductions subject to the 2% floor for the tax years 2018 through 2025. Those expenses include unreimbursed travel and mileage.

That also means that the business standard mileage rate (you’ll find the 2019 rate here) cannot be used to deduct unreimbursed employee travel expenses for the 2018 through 2025 tax years. The IRS has clarified, however, that members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists may still deduct unreimbursed employee travel expenses as an adjustment to income on the front page of the 1040; in other words, those folks can continue to use the business standard mileage rate. For details, you can check out Notice 2018-42 (downloads as a PDF).

What about self-employed taxpayers? The good news is that they can still deduct business-related expenses. However, the per diem rates aren’t as useful for self-employed taxpayers because they can only use the per diem rates for meal costs. Realistically, that means that self-employed taxpayers must continue to keep excellent records and use exact numbers.

As of October 1, 2019, the special meals and incidental expenses (M&IE) per diem rates for taxpayers in the transportation industry are $66 for any locality of travel in the continental United States and $71 for any locality of travel outside the continental United States; those rates are slightly more than they were last year. The per diem rate for meals & incidental expenses (M&IE) includes all meals, room service, laundry, dry cleaning, and pressing of clothing, and fees and tips for persons who provide services, such as food servers and luggage handlers.

The rate for incidental expenses only is $5 per day, no matter the location. Incidental expenses include fees and tips paid at lodging, including porters and hotel staff. It’s worth noting that transportation between where you sleep or work and where you eat, as well as the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are no longer included in incidental expenses. If you want to snag a break for those, and you use the per diem rates, you may request that your employer reimburse you.

That’s good advice across the board: If you previously deducted those unreimbursed job expenses and can no longer do so under the TCJA, ask your employer about potential reimbursements. Companies might not have considered the need for specific reimbursement policies before the new tax law, but would likely not want to lose a good employee over a few dollars – especially when those dollars are important to the employee.

Of course, since the cost of travel can vary depending on where – and when – you’re going, there are special rates for certain destinations. For purposes of the high-low substantiation method, the per diem rates are $297 for travel to any high-cost locality and $200 for travel to any other locality within the continental United States. The meals & incidental expenses only per diem for travel to those destinations is $71 for travel to a high-cost locality and $60 for travel to any other locality within the continental United States.

You can find the list of high-cost localities for all or part of the calendar year – including the applicable rates – in the most recent IRS notice. As you can imagine, high cost of living areas like San Francisco, Boston, New York City, and the District of Columbia continue to make the list. There are, however, a few noteworthy changes, including:

  • The following localities have been added to the list of high-cost localities: Mill Valley/San Rafael/Novato, California; Crested Butte/Gunnison, Colorado; Petoskey, Michigan; Big Sky/West Yellowstone/Gardiner, Montana; Carlsbad, New Mexico; Nashville, Tennessee; and Midland/Odessa, Texas.
  • The following localities have been removed from the list of high-cost localities: Los Angeles, California; San Diego, California; Duluth, Minnesota; Moab, Utah; and Virginia Beach, Virginia.
  • The following localities have changed the portion of the year in which they are high-cost localities (meaning that seasonal rates apply): Napa, California; Santa Barbara, California; Denver, Colorado; Vail, Colorado; Washington D.C., District of Columbia; Key West, Florida; Jekyll Island/Brunswick, Georgia; New York City, New York; Portland, Oregon; Philadelphia, Pennsylvania; Pecos, Texas; Vancouver, Washington; and Jackson/Pinedale, Wyoming.

You can find the entire high-cost localities list, together with other per diem information, in Notice 2019-55 (downloads as a PDF). To find the federal government per diem rates by locality name or zip code, head over to the General Services Administration (GSA) website.

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Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: IRS Announces New Per Diem Rates For Taxpayers Who Travel For Business

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Per Diem is one of the largest tax deductions available to owner-operator truck drivers. Effective October 1, 2018, the daily rate was increased. In this video, we discuss Per Diem and how it will affect owner-operators.

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TurboTax Glitch Led To $216 Million Tax Bill For Thrift Store Worker

Nobody likes getting a tax bill in the mail. It’s especially concerning when your tax bill is a bit higher than you anticipated. But what happens when it’s hundreds of millions of dollars more than you were expecting? Just ask Donna Smith from Aurora, Colorado. Smith, a part-time worker at a local thrift store, got quite the surprise when she opened a tax bill from the Colorado Department of Revenue to find that the state claimed she owed $216,399,508 in taxes.

Smith, who makes about $10 an hour, couldn’t understand the tax bill. To put the amount in perspective, it’s nearly a quarter of the City of Aurora’s entire budget for the year (report downloads as a PDF).

Smith’s returns are self-prepared, of sorts. Her mother, Diana Valencia, prepared Smith’s tax return for 2018 and couldn’t understand what happened. She told 9News that she went back to check the return, saying, “I mean, I thought, ‘Wow, was that an error on my part?’”

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It was an error – but not on Valencia’s part. Valencia used TurboTax to prepare the return. According to the Colorado Department of Revenue (DOR), the TurboTax software made an error tied to Smith’s federal taxable income.

A spokesperson from TurboTax confirmed the error, saying, “For a small number of TurboTax online customers that filed their taxes between June 13-16, there was an issue that caused select fields on their tax return to be incorrectly transmitted during e-file. The issue was quickly fixed and we have been working directly with affected Colorado taxpayers and the Colorado State DOR to help resolve.” If you were affected by the billing error and aren’t currently working to resolve the matter, you should contact the Department of Revenue at (303) 866-4622 to reach a citizen’s advocate.

The Colorado DOR pegged the number of affected taxpayers at 44. That doesn’t mean, however, that a few dozen taxpayers received multi-million dollar tax bills. According to Daniel Carr, Taxation Communications Manager at the Colorado DOR, that number represents taxpayers who encountered the same glitch using TurboTax software during a three-day window in June of this year. “What the taxpayer entered into TurboTax was correct,” Carr said, explaining that “an error in the TurboTax transfer reported incorrect amounts to the State of Colorado.”

The bills went out, explains the DOR, because “[o]n our end it was simply data in data out and we could only process what we were given by TurboTax. We cannot determine the accurate amounts based on the information provided.”

Once the errors were discovered, however, the DOR worked with affected taxpayers. “We have reached out to all of the taxpayers affected and are helping them resolve this issue,” says Carr.

That doesn’t mean that the taxpayers don’t have work to do. According to Carr, “Taxpayers, in this case, who kept a copy of what they submitted are able to send us that copy and we will correct the error. Otherwise, they would have to amend their return.”

(For more information on how to file an amended federal income tax return, click here.)

Mistakes happen all of the time – just maybe not quite this big. No matter the size of the return, taxpayers can protect themselves, Carr advises, by always keeping a copy of filed returns. And if the bill seems out of place? “Contact the Department of Revenue immediately to have it resolved.”

Don’t ignore the problem. That’s good advice for all taxpayers, no matter whether the bill is federal, state or local. In most cases – even when the bill is hundreds of millions of dollars – errors are totally fixable. But don’t wait and hope that it goes away: it’s important to reach out to the respective tax authorities to clear up any problems as soon as possible.

(For more on how to fix a mistake on your return, click here.)

Follow me on Twitter or LinkedIn. Check out my website.

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: TurboTax Glitch Led To $216 Million Tax Bill For Thrift Store Worker

I just finished reviewing TurboTax 2018-2019, and I’m excited about how easy it is to use. 💵But, if you don’t qualify for free file (and it’s limited), they are one of the most expensive options for filing your taxes this year. Check out the full article with all the links here: https://thecollegeinvestor.com/20778/… Here’s what we’re going to talk about in this video: ▶︎ Look at the pricing of TurboTax Online 2018 – 2019 ▶︎ See how easy it is to file your taxes and why I like it so much ▶︎ The limitations of TurboTax Free Edition ▶︎ What upsells to avoid and what upsells you should consider Be sure to subscribe: http://www.youtube.com/subscription_c… ★☆★Resources Mentioned in this video:★☆★ 💵TurboTax 2018 – 2019: http://go.thecollegeinvestor.com/Turb… 💵TurboTax Amazon Deal: https://amzn.to/2EctYxn 💵H&R Block Online: http://go.thecollegeinvestor.com/HRBlock ★☆★ Want More From The College Investor? ★☆★ 💻 Check out my blog here: https://thecollegeinvestor.com/ Connect with me on Instagram: https://www.instagram.com/thecollegei…

How IRS Taxes Fire Victims

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Do wildfire victims worry about their taxes? You bet. How fire victims are taxed depends on what they collect, what they claim on their taxes, if they are rebuilding their property, their insurance and more. Another big variable is whether they sue PG&E. It can build out a complex tax picture, especially now that there is a new tax on litigation settlements, as many legal fees can no longer be deducted.

The IRS (and California’s notoriously tough Franchise Tax Board) require annual tax filings, so several years may be peppered with fire items. Say you lose a $1M home, but collect $1M from your insurance company or PG&E. There’s no tax, right? Not so fast. You need to know about the tax basis of the property, usually purchase price, plus improvements. Your property might be worth $1M when it was destroyed, but if the original purchase price plus improvements was only $100K, there is a $900K gain.

Does that mean a fire victim must pay tax on $900K? Not necessarily. If you qualify and replace your home, you can apply your old $100K tax basis to a replacement. That means you should not need to pay tax on that $900K gain until you eventually sell the replacement home. The replacement must generally be purchased within two years after the close of the first year in which any part of the casualty gain is realized. For Federal Declared Disasters, you get four years. However, if your insurance company has paid you enough to create even $1 of gain on your destroyed property, the clock for acquiring replacement property may already have started.

Another big issue is claiming a casualty loss. Up until 2018, many taxpayers could claim casualty losses on their tax returns. For 2018 through 2025, casualty losses are allowed only if your loss was the result of a Federal Declared Disaster. Most major California wildfires are a Federal Declared Disaster, but determining whether claiming a loss is a good move can be complex.

How to handle expenses for temporary housing and similar expenses can also be tricky. If your primary residence is damaged or destroyed, insurance proceeds intended to compensate you for living expenses like housing and food may be partially tax-free. However, if the insurance proceeds pay you for living expenses you would have normally incurred if your home had not been damaged, say your mortgage payment or your typical food expenses, that portion may be taxable income to you. If the insurance proceeds exceed the actual amount you spend on temporary housing, food, and other living expenses, that surplus can be taxable.

For victims who eventually get a legal settlement, how will it be taxed? Health problems from smoke inhalation or from the exacerbation of pre-existing medical problems can be enough for tax-free damages. Section 104 of the tax code excludes damages for personal physical injuries or physical sickness. But the damages must be physical, not merely emotional, and that can be a chicken or egg issue.

Most money in fire cases is fully taxable, and if you do not reinvest in time, you may have a big capital gain. However, up to $500K from a primary residence may be tax free for a married couple filing jointly. It isn’t only the IRS that collects tax. States do too, notably California, where all income is taxed at up to 13.3%, even capital gain.

Many fire victim plaintiffs use contingent fee lawyers. Up until 2018, it was clear that legal fees were virtually always tax deductible. Now, however, many legal fees are no longer deductible. Thus, some plaintiffs may have to pay taxes on their gross recoveries, even though 40% or more is paid to their lawyer, who also must pay tax on the same fees. The tax treatment of the legal fees has become a major tax problem associated with many types of litigation. Fortunately, if the money can be treated as capital gain, the legal fees can often be treated as additional basis or as a selling expense. In effect, it can mean paying tax only on the net recovery.

Understandably, most fire victims hope not to face any tax hit at all. That is possible in some cases, but it can involve scrupulous attention to timing and details. When it comes to taxes or fire, be careful out there.

This is not legal advice. For tax alerts or tax advice, email me at Wood@WoodLLP.com.

Check out my website.

I handle tax matters across the U.S. and abroad (www.WoodLLP.com), addressing tax problems, tax disputes, writing tax opinions, tax advice on legal settlements

 

Source: How IRS Taxes Fire Victims

IRS Will Offer Free Help For Those Struggling With Withholding Taxes

Businessman opening envelope with paycheck

If the changes to tax rates and withholding over the past year have you scratching your head, help is on the way. The Internal Revenue Service (IRS) is offering a free online information session on how to do a Paycheck Checkup.

Here’s why many taxpayers are confused. The Tax Cuts and Jobs Act (TCJA) introduced many changes beginning in 2018, including caps on state and local tax deductions, a zeroed-out personal exemption amount, and the elimination of reimbursed job expenses. Additionally, new withholding tables were not available to employers until mid-January 2018, and some employees didn’t see a switch in withholding until mid-February 2018.

(You can find out more about updating your form W-4 here.)

The combination of new rules, new withholding tables, and even new tax forms meant that many taxpayers didn’t withhold properly. In January of 2019, the IRS advised that they will waive underpayment penalties so long as withholding and estimated tax payments total at least 85% of the tax shown on the return for the 2018 taxable year. Just a few days ago, the IRS expanded the relief to those whose withholding and estimated tax payments total at least 80% of the tax shown on the return for the 2018 tax year.

To avoid the same kinds of problems next year, the IRS is encouraging taxpayers to plan ahead. By plugging your current tax data into the withholding calculator on the IRS website, you can do a paycheck checkup and avoid any nasty surprises at year end. You should consider a checkup even if you did one in 2018: another review can help make sure you’re withholding the right amount for 2019.

The IRS webinar will walk you through how to use the online IRS Withholding Calculator (you can find out more about the withholding calculator here). Folks who might need a checkup include those taxpayers who had a large tax refund or tax bill for 2018 when they filed their tax return this year, or had a major life change (like a wedding, birth of a child or bought a house) in 2019. Other taxpayers who might need a checkup include two-income families or those taxpayers who have two or more jobs at the same time, or those who claimed refundable tax credits like the Child Tax Credit or Earned Income Tax Credit.

The seminar, scheduled for Thursday, March 28, 2019, will be offered twice: once in English (at 2 p.m. Eastern) and once in Spanish (at 11 a.m. Eastern). There will also be a special Q&A session. To register for the English version, click here. Para inscribirse en la versión en español, haga clic aquí. Closed captioning will also be available.

Want more taxgirl goodness? Pick your poison: follow me on twitter, hang out on Facebook and Google, play on Pinterest or check out my YouTube channel. 

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anythin…

Source: IRS Will Offer Free Help For Those Struggling With Withholding Taxes

2019 Tax Refund Chart Can Help You Guess When You’ll Receive Your Money


If anyone tells you that they have the 2019 tax filing season all figured, they’re lying. By all accounts, the upcoming tax season is going to be tricky. Despite a shoestring staff due to the shutdownnew tax forms and new tax rules, the 2019 tax season is still set to open on January 28, 2019. The Internal Revenue Service (IRS) claims that the season will operate as close to normal as possible—including issuing tax refunds. So when are those tax refunds coming……….
Source: https://www.forbes.com/sites/kellyphillipserb/2019/01/21/2019-tax-refund-chart-can-help-you-guess-when-youll-receive-your-money/#6522e9684ba2

IRS Announces Tax Season Start Date Despite Government Shutdown

The Internal Revenue Service (IRS) has announced that tax season will open on Monday, January 28, 2019. The IRS will begin accepting paper and electronic tax returns that day. The IRS made the start date announcement despite the ongoing government shutdown. “We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig………

Source: IRS Announces Tax Season Start Date Despite Government Shutdown

Do You Know Who Is Preparing Your Tax Return – Megan Gorman

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There is a secret in the tax business, known within the industry but rarely discussed publicly. In fact, it’s pretty hard to get anyone in tax to talk about it. Not overseas as in a tax firm’s office based in another country. Rather, overseas as in your tax firm has contracted your tax return out to a third-party firm in another country. It sounds crazy and far-fetched but outsourcing to India, the Philippines, Bangladesh and other countries is increasingly common……

Read more: https://www.forbes.com/sites/megangorman/2018/10/20/did-your-tax-return-earn-more-frequent-flier-miles-than-you-did-last-year/#600dd81bfb48

 

 

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